Welfare U-turn leaves chancellor with financial blackhole that could lead to further humiliation
The welfare bill U-turn is politically embarrassing for the government, and it also leaves the chancellor with a significant financial problem.
If you recall, the original plan was rushed out before the Spring Statement in March because Rachel Reeves was in danger of breaking the borrowing and debt rules she had just set, at the first time of asking.
The government envisaged saving £4.5 billion a year by making it harder to qualify for Personal Independence Payments.
And a further £2.7 billion by cutting future spending on incapacity benefit - the 'health' element of Universal Credit.
The government also wanted to increase the generosity of universal credit for those out of work without health problems - benefit support for jobseekers in the UK is pretty mean by comparison with other wealthy European nations.
This netted out at total savings of £5.5 billion by 2029/30.
The PIP changes were tweaked and have now been shelved.
The changes to the incapacity benefit have been watered down.
The uplift to the standard allowance goes ahead as planned, so savings are now the sum total of zero.
As things stand, the changes are likely to cost the government money.
'After [yesterday's] climbdown, the government is effectively returning to the drawing board,' says Helen Miller of the Institute for Fiscal Studies.
'The Timms Review may lead to savings, although Sir Stephen Timms, minister of state for social security and disability, has said that the review is not intended to save money. And this review is not due to report until autumn 2026.'
Let us be clear, there has been a HUGE increase in the number of people claiming disability and incapacity benefits in the last five years.
We don't really know why. It's definitely not Long Covid. It's probably not entirely down to the cost of living crisis, although higher inflation will have been painful for anyone on benefits.
We do know this hasn't happened in other countries.
It's perfectly normal for a government to be concerned about a surge in claims and to seek to reform the system, but goodness, this has been a fiasco.
Back in March, according to the OBR, the chancellor had £10 billion of headroom against her self-imposed fiscal rules.
£5.5 billion of that has gone. Another U-turn on winter fuel will cost the government another £1 billion.
The outlook for economic growth (and therefore tax revenues) is weak. Borrowing is overshooting, and the government's borrowing costs are high. The news doesn't look good.
As things stand, there's a good chance Rachel Reeves will have to increase taxes in the autumn, if she is still chancellor.
Unless something changes, there's the prospect of further political humiliation ahead.
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Glasgow Times
29 minutes ago
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'The worst they can do is nothing,' the backbencher added. The Prime Minister used a Cabinet meeting on Tuesday to defend his record in office, telling ministers the welfare Bill was 'to help those who can work into employment and ensure dignity and security for those who can't work.' He said they could all 'rightly look back with a real sense of pride and achievement' on the last 12 months, pointing to a reduction in NHS waiting lists and a series of economic agreements struck with the US, EU and India. Abroad, the Prime Minister faces a tricky diplomatic balancing act as he seeks to strengthen ties with both Europe and Washington amid global instability from the Ukraine war and Middle East crisis. Sir Keir Starmer secured a trade deal with the US last month (Suzanne Plunkett/PA)h At home, Labour is staring down a threat from Nigel Farage's Reform UK party, which turned opinion poll momentum into widespread gains at the ballot box during the local elections in May. 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Prof Bale said he believed the first year had gone 'worse than most people imagined' and warned 'it's difficult for a leader who starts badly to persuade people that he or she is what they need.' But he said the problems were not necessarily fatal, adding that setbacks early on in a premiership have an upside in allowing for more time to 'turn it round'. 'If you look back to Margaret Thatcher, she was able to do that, so it's not a foregone conclusion that all is lost, even for Keir Starmer himself,' he said. Arguing that the Government could recover in the polls if its plans for the economy and public services pay off, he added: 'I think you can see the light at the end of the tunnel, but it's a very long tunnel.' Sir Keir has pledged to lead a 'decade of national renewal' through a phased approach to Government, the first year of which he said would involve 'cleaning up the mess' his administration had inherited. In a speech last week seeking to set the tone for the future, he said: 'We've wiped the state clean, we've stabilised the economy, and now we can go on to the next phase of government, building on that foundation.' A Government spokesperson said: 'We were elected with a commitment to deliver change and security for working people – and we are getting on with the job. 'We are delivering our Plan for Change – wages are rising faster than prices, interest rates have been cut four times, immigration has come down with 30,000 people with no right to be here removed and over four million NHS appointments have been delivered. 'Progress has been made, but we know people are impatient for change – and we are too – so we will continue to govern in the national interest for British people and deliver a decade of national renewal.'
Rhyl Journal
29 minutes ago
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Starmer faces Labour turmoil and global volatility as he marks year in Number 10
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Pessimism doesn't necessarily go down very well,' he told PA. 'The thing with Starmer is, he's a brilliant prosecution lawyer… But prosecution lawyers present cases that have been (put together) by someone else. The problem is that as a political leader you've got to prosecute your own case. 'Maybe he needs new personnel? Either he's got to learn to do it himself or get someone in to do it for him.' That verdict was echoed by some dissenting voices within Labour ranks, where there is lingering discontent among rebels over the Government's Welfare Bill despite Number 10 offering major concessions on the legislation. The Government saw off the threat of a major Commons defeat over the legislation on Tuesday after shelving plans to restrict eligibility for the personal independence payment (Pip), the main disability benefit in England. 'I think he really needs to think about why he wants to be a Labour Prime Minister and what is it he actually cares about,' one long-serving Labour MP said. They said Tuesday had marked 'the lowest point' in Sir Keir's premiership so far and raised questions about his authority, warning that backbenchers may now feel emboldened to demand further U-turns elsewhere. Sir John said that the Government's challenges in passing legislation were unsurprising with the broad but fragile coalition of support on which Labour built its election victory, securing 412 seats on just 35% of the vote. That means many MPs defending narrow majorities and raises the prospect of 'a large body of people who are nervous about their political futures,' he said. The Government's original welfare proposals had been part of a package that ministers expected to save up to £5 billion a year, leaving Chancellor Rachel Reeves needing to look for the money elsewhere. 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Prof Bale said he believed the first year had gone 'worse than most people imagined' and warned 'it's difficult for a leader who starts badly to persuade people that he or she is what they need.' But he said the problems were not necessarily fatal, adding that setbacks early on in a premiership have an upside in allowing for more time to 'turn it round'. 'If you look back to Margaret Thatcher, she was able to do that, so it's not a foregone conclusion that all is lost, even for Keir Starmer himself,' he said. Arguing that the Government could recover in the polls if its plans for the economy and public services pay off, he added: 'I think you can see the light at the end of the tunnel, but it's a very long tunnel.' Sir Keir has pledged to lead a 'decade of national renewal' through a phased approach to Government, the first year of which he said would involve 'cleaning up the mess' his administration had inherited. 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Daily Mirror
38 minutes ago
- Daily Mirror
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